January is an exciting month in many state capitals around the country. There are twenty new Governors being sworn in and starting to announce their teams. There are others who were re-elected and recognize that a second term provides a unique moment to be bold with their agendas. Soon, many will need to submit their first budget request and begin the shift from campaign rhetoric to actual programmatic and policy-driven agenda setting.
We have seen the good, the bad, and everything in between in how these leaders – well, LEAD. Some will seek to lead in a hands-on way, meeting with key constituents and helping to manage the daily agenda of the government. Others will choose to rely on the talented people they hire to carry out the vision.
Most are in agreement that the economy of their state – jobs for residents, happy employers, outsiders interested in moving in – are all important to their political futures. They recognize that a healthy economy makes the other tough issues they must deal with easier.
So how do they ensure economic success?
Think Beyond Transactions
It’s hard to argue against wanting the press release and the photo op with the big scissors or golden shovels. The announcement of an expansion, a new housing development for millennials, or a major infrastructure project, all attract interest and ‘show’ that things are getting done. I’ve seen too many economic development leaders focus on these wins and ignore what’s bubbling beneath the surface in their communities.
The announcement of these transactions must be accompanied by an understanding of the short and long term consequences. Often these broadcasted wins fall short of the excitement promised. Economic forces change the narrative and project scope as the growth ramps up; or worse, the face-value excitement is for a deal that will strain the community fabric. For example:
Community Win: Job creation!
Community Loss: All of the jobs pay below the community’s living wage.
Too many communities are losing with this rhetoric, and trust in leadership is lost as excitement deflates.
Announcing improvement in areas like place, investment, diversity, sustainability, and talent are the wins that leaders should aim for to create a lasting impact and to maintain trust and excitement about local development.
The Fourth Economy Community Index is a great resource for economic development officials to start looking into key indicators, like those listed above for each county in their state. The Community Index is a free resource that profiles almost every county by using 19 indicators that we think illustrate what is needed for success.
Quality of Place Drives Economic Development
For years now, I’ve been preaching that the best tool for economic development is a vibrant community that supports diverse lifestyles. There are a lot of people who get paid to tell you how bad your tax system is, why you should throw truckloads of incentives at companies and that your red tape is ‘crushing business’. Our research has shown that in a vibrant community those issues become footnotes and not the lead story. People want to be in communities that have culture, recreation, good education, and a welcoming environment. If you have those things people will stay or move to be there and the jobs will follow.
A few years back we researched the most transformed places in the country and found the quality of place to be the common thread. The message and results of that research are stronger than ever.
Power Comes From Collaboration
The history of governors and economic development leaders is filled with those who have tried the Command and Control approach, and those that pursue Collaboration.
The command and control leaders think that the path to success can be dictated. They fail to recognize that economic development is a team effort that can sometimes involve hundreds of organizations and leaders.
The Collaborative crowd recognize this and use their positions to rally, to leverage, to inspire those in their network to pursue a shared vision. The collaborative leaders will have a longer-lasting positive impact. They are the ones that collect awards and are well-regarded by their peers and communities they serve.
These are my three pieces of economic development advice to our newly-elected officials:
- Don’t get caught up in flashy announcements
- Pursue quality of place for all citizens
- Work collaboratively with organizations and local leaders.
Governors that uphold these standards will set themselves, and their state, apart from the rest. I hope that all leaders, not just governors, can use this advice to help chart a better course and support vibrant communities in their state.
We see the Fourth Economy Community Index as a starting point for communities, providing a baseline to help understand where they are doing well and see where there is room for improvement.
We envision using the information:
- When developing an RFP to create specific strategies to improve your community
- To lead community discussions about areas of relative strength and weakness
- To inform presentations to stakeholders about the state of your community
- To compare your community to top ten communities of the same size
The Index model incorporates twenty different indicators in the areas of Investment, Talent, Sustainability, Place, and Diversity. While we know there is no single recipe for economic success, we also know that these five areas are critical ingredients in vibrant communities everywhere.
What do we mean by each of these?
- Investment: active businesses, access to capital, and investment in physical infrastructure
- Talent: a growing workforce with education and job skills, equipped to excel in high-wage opportunities
- Sustainability: transportation, land use, and environmental conditions that promote healthier lifestyles and a healthier planet
- Place: affordable housing and transportation options that provide access to recreational and cultural amenities
- Diversity: personal and professional interaction across lines of race/ethnicity, age, and wealth
Top 10 Mid-Sized Counties in the US (50K – 150K)
- Minnehaha County, SD (Sioux Falls)
Minnehaha County, South Dakota, has strengths in Place, Investment, and Talent, and has experienced a whopping 8% growth in population over the past five years. Along with the increase in the population of Minnehaha and the Sioux Falls area, the county also has a robust business community and has seen increasing development to meet demand, as illustrated by the blossoming communities around Sioux Falls.
Energy is a vital sector and a job generator, but it is also important to understand that there are some real challenges for how the development of energy resources and systems benefit the economy.
The Good: Energy is a Job Generator
The 2017 United States Energy and Employment Report (USEER) estimated there are 6.2 million workers in Energy and Energy Efficiency in 2016. This broad definition for Energy accounts for four of every 100 jobs in the U.S. with the largest share in Energy Efficiency Construction. The Energy sectors defined by the USEER report added 300,000 net new jobs in 2016, more than any other sectors than Accommodation and Food Services.
Energy is a common thread woven throughout every aspect of our lives. It is a link between all sectors of the economy, our health, and the environment. Virtually every aspect of our modern industrial lives depend on reliable electrical power and energy infrastructures. Energy is vital for everything we produce but that link is weakening as manufacturing grows more efficient. Gross output in U.S. manufacturing has remained stable or grown since 1998, while overall fuel consumption and energy intensity have decreased.
The Bad: Energy Growth <> Job Growth
Even though energy is essential to our economic life, the development of energy resources does not translate into overall economic growth. At the state level, the development of natural resources and mining has not benefited the host states – there is no relationship between output growth in these sectors and the overall growth of the state economy. The lone exception is North Dakota, where the energy boom fueled growth in a state with about 750,000 people. For other states experiencing an energy boom, such as Pennsylvania, Ohio, and West Virginia, the energy boom has not translated to overall economic growth.
The Ugly: The Workforce Gaps
73 percent of employers reported difficulty hiring qualified workers over the last 12 months. Some of this reflects the difficulty in finding qualified workers willing with the skills and desire to take on a challenging job. However it also reflects the difficulty that some sectors have in recruiting from a broader pool of candidates.
Ethnic and racial minorities are not well represented in the energy workforce. In the U.S., Hispanic or Latino workers make up 16 percent of the workforce but only 14 percent in energy. Black or African American workers account for eight percent of the energy workforce compared to 12 percent. The glaring gap however is that across all sectors of energy women account for a low 22 percent of the workforce in energy efficient vehicles, up to 34 percent for electric power generation, which is still below the 47 percent for the overall U.S. workforce.
We need energy for our economy and it is an important source of job growth. However, the development of energy assets does not guarantee growth in other sectors. Furthermore, more must be done so that the jobs that are created are available to the widest possible pool of eligible candidates.
Earlier this month, Fourth Economy came together with practitioners from various sectors and parts of the country to help St. Louis tackle the issue of economic inequity. We were convened by 100 Resilient Cities – Pioneered by The Rockefeller Foundation, because they have seen so many of the cities in their network identify economic inequity as a key stress. Fourth Economy is a platform partner of the 100 Resilient Cities network, creating tactical recommendations for the planning and implementation of resilience efforts. After two days of intense collaboration, our group of community leaders, Chief Resilience Officers, economic development experts, and other thought leaders developed seven discrete project ideas that St. Louis could implement to impact economic inequity.
Some of our ideas really focused on the basics. One clear take-away is that before we can implement new, innovative solutions, we need to ensure that we are investing in the basics.
- Talk to Each Other – First thing’s first…Developers, city agencies, and community organizations need a forum to discuss how all partners enhance the tools, processes, and partnerships to implement equitable economic development.
- Equitable Economic Development Strategy – St. Louis is about to embark on creating an economic development strategy; making it explicitly about creating an equitable economy will be key.
- Resilient CDCs – Like many of our cities, some of our neighborhoods have strong community-based organizing and development capacity, while others are lacking in investment, or quality investment, in part due to this lack of capacity. We recommended an organization that could promote sharing of resources, developing professional capacity, promoting collaboration, and developing a central pool of funding.
One of those other important basics is data. We all know that what isn’t measured, doesn’t count. So 100 Resilient Cities is working with the CUNY Center for State and Local Governance to help cities in the network develop a set of equity indicators. The equity indicators that St. Louis will be using to measure economic resilience and economic equity include:
- Are residents able to fully participate in the economy?
- Educational attainment: Enrollment in college or vocational training
- Education quality: Dropout rate
- Court reform: Youth adult convictions for nonviolent, nontraffic crimes
- Court reform: Legal representation
- Civic engagement: Digital equity
- Are residents able to access goods and services?
- Health: Pedestrian deaths
- Health: Access to healthy food
- Health: Access to social services
- Are residents able to invest in their own community?
- Financial empowerment: Median credit scores
- Financial empowerment: Home loan denial rates
- Financial empowerment: Business ownership rates
With these indicators in mind, our group developed ideas around both Access and Investment.
Access to Services and Jobs
- Hubs of Growth – In cities that have experienced the degree of population loss that St. Louis has (and that’s a lot of us!), we must foster the development and growth of neighborhood hubs of economic and community activity that will drive growth in their surrounding areas. If connected by transit, these hubs can enhance safe access to healthy food and social services, but also create the density needed to support the growth of local businesses.
- Mobilize – Another common challenge is the mismatch both between where people live and the skills they have, and where and what jobs are available. This idea brings employers and training providers to the neighborhoods to better understand the needs and opportunities of residents, and target services accordingly. Furthermore, micro transit would be used to connect residents to jobs.
Investing in Small Business
- Scale up STL – This program would increase access to capital and supportive services for small businesses that want to scale in targeted neighborhoods. This could include discounted land/space, collateral back stops, regulatory relief, and right-seed lending products.
- Small Business Portal – St. Louis is making investments in its open data portal. But once they have all of their data available, how should it be used? This proposal is to engage small businesses to understand how the data can best be utilized to support their growth.
- Women of STL – St. Louis could use a grass-roots organization run by women that strengthens the social fabric and supports the creation and growth of women-owned businesses. This organization would provide workshops, business incubation to address how to start a business, how to access credit, and technical training, e.g. use of internet resources.
As the City of St. Louis develops its resilience strategy, these ideas will be further developed. If you know of best practices in any of these areas, send them our way so we can help St. Louis create equitable economic development faster!
Workforce is the underpinning of the three-legged stool of economic development. Without a strong workforce, there is no way to succeed at business attraction or retentionand no way to cultivate entrepreneurs. In economic development circles, the discussion around placemaking often centers on talent attraction. The thinking goes that top talent is attracted to places with high quality of life; businesses thrive on this talent and will expand and relocate to those places where talent flocks. So, in essence, places with a high quality of life are better for business.
A Change in Economic Forces
It used to be that a community’s economic success was dependent on some fixed competitive advantage such as access to natural resources or proclivity to a transportation network for moving goods. A good example is our firm’s hometown, Pittsburgh, located in an area rich in ore and coal to make steel and with access to three major rivers. Manufacturing created the economies of Pittsburgh and many other cities, but today, talent is the number one most important economic force. Sources from across the economic development spectrum tell us this. Nearly all the executives (95.1 percent) surveyed by Area Development in its 28th annual Corporate Survey rated availability of skilled labor as “very important” or “important” in their site selection factors. This factor is now considered more important than highway accessibility and labor costs, and certainly more important than incentives offered. We see this in Pittsburgh too, as companies such as Google and Facebook locating offices in town to be close to the graduates of the University of Pittsburgh and Carnegie Mellon University.
But talent is in short supply. Unemployment rates are falling, which means there are fewer people available for jobs. This is felt particularly hard in tech companies, which report a lack of talented workers with the skills needed for the rapidly evolving industry. Another benefit of attracting and retaining talented workers is that they are engines of innovation, whether from the inside of companies where they spearhead new ideas and spin off new divisions, or through entrepreneurship, forming their own enterprises and creating jobs. Attracting new talent is essential, and the best way to bring in high quality people is to offer a high quality of place.
Beyond the Baseline of Quality Markers
Quality of place means many things. A more traditional definition includes low crime rates, good housing stock, great schools, and local culture and recreation. But the cities and regions that are really pulling ahead in the race for talent understand that the baseline is no longer good enough. Much has been made of the “return to the city” and how millennials and baby boomers prefer a dense, walkable environment where they can live, work and play (to the point where urban planning professionals roll their eyes at the catchphrase). But the proof is in the evidence. Cities that provide living space in multi-use areas connected by transit and surrounded by quality recreation outlets are seeing their attraction of talent skyrocket.
Take Denver for example. The city has bet large on placemaking, from the $1 billion revitalization of the historic downtown Union Station to a new light rail system. These investments, coupled with outdoor amenities and copious sunshine, have contributed to Denver being named by the Brookings Foundation as second in the nation for attracting millennials. But it’s not just large cities that benefit economically from increased quality of life via placemaking. Regions around the U.S. are shifting their focus from business attraction to talent attraction. In Northeast Indiana, the focus of the Northeast Indiana Regional Partnership is to attract new people to the area through improvements in downtowns, greenways and blue ways, arts and cultural assets, and education and industry through the Road to One Million plan (which Fourth Economy had a role in creating.)
Resiliency Means Quality of Place for All
Attracting and retaining talent is an essential component of economic development, but, it’s important to understand that placemaking does not mean only making places comfortable for highly skilled, highly paid employees. A well-designed place delivers quality of life to those at every age and income spectrum. Planning for all members of a population is what makes a place resilient and vibrant.
Providing affordable housing, especially in trendy inner-city neighborhoods, is a tough challenge and one that affects the workforce, especially for essential employees whose wages don’t begin to compare with highly paid tech workers. In places like New York, workers who make under $35,000 are increasingly being pushed out of formerly affordable neighborhoods to outer suburbs. When this happens, the financial and time cost of their commutes rise, cutting into already low wages. While particularly dire for service employees such as retail workers, this also affects teachers and police personnel.
From the placemaking perspective, increasing density leads to more options for housing across the spectrum, ideally situated in in-town neighborhoods that are walkable and served by transit. As the supply of housing increases in these desirable neighborhoods, the price decreases. One tactic to encourage denser development is to allow for “Missing Middle” housing to be developed. Missing Middle housing, a term coined by Opticos Design, is composed of a range of multi-unit or clustered housing types that are compatible in scale to single-family homes. Some examples include duplexes, carriage houses, townhouses, and accessory dwelling units. Allowing this type of development densifies neighborhoods and provides access to housing at a lower price point, without a significant disruption of neighborhood character.
Barriers to Small Scale Affordable Housing
Building Missing Middle housing is typically not undertaken by large developers, and therefore is built by property owners, small real estate developers, and community development corporations and financed by local banks. The margins of profit for Missing Middle housing are smaller so in order for these projects to be financially feasible, there must be a regulatory environment that permits these types of buildings. Most existing zoning codes separate housing types so that multi-family is not intermixed with single family and residential above retail is not allowed. This stunts Missing Middle housing by forcing projects to go through zoning hearings that extend the project timeline and cost to a point where construction is not feasible.
Allowing for small residential infill projects to be built not only provides more options for affordable housing, it allows property owners to benefit from rising housing costs, and alleviates increased property taxes. Of course, to truly provide benefit, increased density needs to be coupled with transit to access jobs and services.
A Connected Workforce
Placemaking is a term that can be misconstrued to simply mean making communities more beautiful. While placemaking tactics such as downtown development, street scaping, and encouraging traditionally affordable housing types does improve a community’s aesthetics, if done properly, placemaking can unlock significant economic value. Connected, vibrant communities with a multitude of housing and transportation options return the best value to inhabitants, creating places that workers are attached to and invested in.
The following is the second installment of a four-part series entitled, “Re-defining the Three-Legged Stool: Placemaking as a Component of Economic Development.”
The previous installment explored placemaking’s role in business attraction as it improves the quality of life of a community and the marketability of a place. This installment considers how placemaking influences business attraction and retention.
Defining Business Retention and Expansion
Business retention and expansion (BRE) is different than business attraction because it focuses on helping existing businesses already in the community to prosper and grow. Typically, the main tool of BRE is a yearly survey of businesses that economic developers send out to (or make appointments to work through in-person with) businesses in their communities. In cases where businesses are seeking to expand, economic developers can provide access to financing, in the form of revolving loan funds, grants, and other loans, or by providing access to municipal or state resources.
Mixed Uses Contribute to Improved Usability
But, even if they aren’t aware of it, economic developers are also likely engaged in business retention and expansion activities that overlap with placemaking. For example, businesses that are multi-use, such as breweries with attached tasting rooms or small-scale food manufacturers with attached kitchens, often do not fit into one zoning category — though their mix of uses is what makes them unique, and contributes to a lively neighborhood. This can make expansion difficult, and lead to cumbersome zoning negotiations, causing businesses to lose both time and money. If economic developers work with city planning staff to assist business owners in these cases, then they are helping to create more vibrant places with improved usability.
New Uses for Older Properties
As real estate tides change, economic developers will need to be creative about new uses for old properties. Retail outlets and office spaces are being repurposed for apartments, maker spaces and incubators or are being converted into space for existing businesses to expand. The success of these new uses depends on a vibrant, transit-linked, pedestrian friendly environment to attract the kind of young talent that populate these spaces.
Creating nodes of activity in centrally located, pedestrian, and transit-accessible areas can also assist with regional business retention. As shown by the Brookings Institution’s research shows, more and more companies are choosing to move from suburban corporate campuses to areas where economic, networking, and physical assets are more accessible, contributing to a rise in what has been termed “Innovation Districts.” These districts combine small businesses, bars, and restaurants with startups, institutions such as banks and universities, and large companies. The diverse mix of tenants leads to more collaboration and an attractive environment for knowledge workers.
Attracting a Quality Workforce
From assisting businesses with zoning issues to encouraging innovation districts, business retention and expansion efforts are improved when viewed through a lens of placemaking. However, the most important determinant for keeping businesses in a community and helping them to expand is a talented and plentiful workforce. Creating a place with a higher quality of life attracts more people to communities and engenders a strong bond that helps retain populations. Smart companies understand this and locate themselves where their workforce wants to live. Placemaking is part of a larger business retention and expansion effort, and offers an advantage that should be used by economic developers.
The three-legged stool of economic development is made up of business retention and expansion, business attraction, and entrepreneurship and small business development. In recent years, it has become apparent that the strength of a community’s workforce undergirds this framework. Thus, in the diagram below, workforce development has been added as a foundation for each of these activities.
Placemaking, according to Wikipedia, is a multi-faceted approach to the planning, design and management of public spaces. Placemaking capitalizes on a local community’s assets, inspiration, and potential, with the intention of creating public spaces that promote people’s health, happiness, and well-being. While the process is heavily based in design, placemaking results in more choice of housing, transportation options, and retail options, which improves people’s lives across the economic spectrum.
Placemaking enhances economic development efforts in each of the three legs of the stool, as well as through impacting workforce development. Beginning with this installment, a new series of articles in the Fourth Economy newsletter will delve into the role that placemaking has in economic development as the economy continue to transition towards the knowledge and service economies. Competition is increasing because talent and companies are tied more and more to places that support knowledge economies rather than natural resources or commodities. As the playing field levels, the competition for jobs and talent is tied to quality of place.
Often, when discussing economic development, business attraction comes to mind first. Business attraction is the process of marketing your community to firms that fit well with its already-existing advantages. Marketing can happen through an internet presence, as well as through traditional means, such as brochures or advertisements in magazines. Another tool that is used to entice business are incentives in the form of lowered taxes, financial grants, or providing infrastructure.
There are a few disadvantages to these methods. Advertisements are designed to catch the eye of site selection consultants and corporate location specialists; however, these populations likely already have access to scores of data about your community through public data bases such as the Census Bureau and private databases available via subscription services. If the story that this data tells about your community does not correspond to their needs, then no matter how much is invested in advertising, there won’t be much interest.
Incentives in the form of lowered taxes, grants, or infrastructure improvements can be an effective way to bring new businesses into a community. However, offering tax incentives can lead to a “race to the bottom” with communities attempting to outbid each other. Furthermore, offering these types of incentives can cut into school budgets, and divert funds from other priorities.
Placemaking can therefore play an important part in business attraction because it improves the quality of life of a community. Quality of life is the top reason why company executives chose to locate in a place where they themselves have to live. Improving this factor can improve the impact of advertising and decrease the need for tax incentives by providing intrinsic value for employees living in the town. While all aspects of business attraction are important, placemaking improves the product being sold, which, in turn creates a better lifestyle for both employees of new firms and existing residents.
At Fourth Economy we have been tracking the news about retail store closures. These store closures often can leave significant redevelopment challenges for local community and economic development officials. In future posts we will highlights some of the ways that communities are dealing with these buildings. According to Business Insider more than 5,000 store closures have been announced so far, with the potential for nearly 9,000 store closures by the end of 2017. These store closings are the most physical manifestation of the challenges facing the retail sector.
As a resource to the community, Fourth Economy has started to identify and compile a list of retail store closings. Tracking down the locations has proven to be a challenge, but we have identified 1,768 of these closings so far. You can see the results in the above Working Map of Retail Closings, created in Tableau Public. We are providing this as a resource to the community and will continue to update it as closings are announced and locations identified. If you know of any closings in your area, please send them to email@example.com and we will update the map.
Stay tuned for more.
The Fourth Economy team strongly believes in the power of partnerships in improving community and economic development outcomes. Through our work, we have managed numerous collaborations and identified four keys that lead to effective partnerships.
Patience, Participation, and Partnership
Effective collaboration can be difficult and often takes time. Therefore, it requires that all stakeholders have patience throughout the process of building partnerships and developing solutions. As partnership groups face challenging times, it is critical that they overcome these difficulties together and remain engaged in the effort. One difficulty that may arise is that as individuals and organizations collaborate to further a common purpose, they are typically guided by their own self-interest. These motivations are not always negative and can often support the success of collaborative groups when they are aligned with the goals of the larger partnership. In addition to acknowledging these self-interests, during initial conversations, these groups should identify outcomes and boundaries to focus their work. The group should allow for some flexibility in these areas as issues can change, but too much flexibility will impede the group’s ability to effect change and could cause stakeholders to leave the group. Continue reading “The Four Keys to Effective Collaborations”
A great American poet once said, “For the times they are a-changing.” That is especially true today in our economy. Underneath the radar of the rhetoric and public spotlight, the changes in the economy are generating a ripple effect for how industries and people use land. Land use is not a topic that is top of mind for most people, but a few local governments are waking up to the reality that a number of forces are beginning to change the need for land, and ultimately its value. Local governments care deeply about land use, or they should, because the value of land translates into the property tax revenues they need to maintain the community. Continue reading “New Economics of Land Use”